Recent statistics issued by the Investment Association (IA) point to a declining interest in individual savings accounts (ISAs). In 2016 the IA recorded only two months in which new money flowing into ISAs exceeded existing money flowing out. Not surprisingly, the two months of net inflow were March and April, with the traditional end of tax year rush.

The tax advantages of ISAs remain unchanged, but for some investors the arrival of the dividend allowance and personal savings allowance last April mean that an ISA offers no immediate tax benefit over direct investment. As a reminder, under an ISA:

Interest and dividends are free of UK income tax;

There is no tax on capital gains;

Withdrawals can be made of any amount at any time, with no tax charge;

Unlike pensions, the contribution limit is straightforward (£15,240 in 2016/17, £20,000 in 2017/18 in total to all ISAs) and there is no equivalent of the lifetime allowance limiting the tax-efficient size of the fund. Indeed, some long term savers already have ISAs valued at more than the current pension lifetime allowance of £1 million.

There is nothing to report personally to HM Revenue & Customs.

Just over two years ago, regulations were introduced to make ISAs effectively inheritable between spouses and civil partners. These regulations proved overly complex and in his 2015 Autumn Statement George Osborne promised to introduce some simplifying amendments. Last month, a draft of these finally arrived. Once put into force, they will mean that in nearly every instance you will be able to inherit the full value of a spouse’s / partner’s ISA and the tax benefits will not be lost during the estate administration period.

If you were wondering about whether to make your end of tax year (or even start of tax year) ISA contribution, the regulations are another reminder of the ISA’s benefits.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

National Savings and Investments (NS&I) has announced that it will be cutting interest on four of its variable rate products from 1 May. It says the cuts follow on from the Bank of England’s base rate cut to 0.25%, a reduction which occurred last August. Clearly NS&I has been in no rush to react.

The changes will leave Income Bonds and the Direct ISA both paying just 0.75% interest, well below the latest (January) 2.6% rate of RPI inflation. The cuts will once again remove NS&I from the top rungs of the league tables where, unusually, they have been for some months. By shaving 0.25% off its current rates on these two products, NS&I will be cutting the income payable by a quarter – one of the curious knock-on effects of a world of ultra-low interest rates.

Premium Bonds will suffer a smaller cut, with the annual prize fund rate dropping from 1.25% to 1.15%. To deal with this – which equates to an 8% drop in total prize money payments – the distribution of prizes will be altered once more. The share of the prize fund going to large (£5,000 and over) payouts will be unchanged at 5% of the total jackpot. NS&I estimates that the number of large prizes will drop from 111 in February 2017 to 89 in May 2017. The total number of prizes in both months will be over 2,200,000 and the odds on winning, 1 in 30,000.

There are still plenty of opportunities to earn an income well in excess of NS&I rates, but, as ever, advice is vital to balance income and risk. As a general rule, the higher the income on offer, the more risk needs to be considered, whether in terms of being locked in for a long period or losing capital security. Please get in touch with us if you’d like to discuss your optins.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The Chancellor announced on 15 March that he would not be going ahead with his Budget proposal to increase the National Insurance Contribution rates for self-employed people.

In the Budget of 8 March 2017, he announced that Class 4 NIC rate for the self-employed would rise by 1% to 10% in 2018/19 and by a further 1% in 2019/20. The proposed increases provoked a widespread outcry, not least because the Conservatives 2015 election manifesto stated “we can commit to no increases in VAT, Income Tax or National Insurance.”

A week later, perhaps appropriately on the Ides of March, the Chancellor issued a letter to MPs saying that there would be no increase to Class 4 NICs “in this Parliament”. However, the abolition of Class 2 NICs will still go ahead from April 2018, meaning that the self-employed will generally see their NICs bill fall from 2018/19.

At Prime Minister’s Questions, Mrs May has said that the government would review areas of difference in the treatment of the employed and self-employed following a forthcoming report of modern working practices being prepared by Martin Taylor. Mrs May’s comments reiterated a point made by the Chancellor, who also wrote in his letter that “The cost of the changes … will be funded by measures to be announced in the Autumn Budget.”

6 April marks the launch of a new ISA variant, the Lifetime ISA (LISA).

One of the last surprises produced by George Osborne in his final Budget was the announcement of the Lifetime ISA. Shortly after Mr Osborne was replaced it began to look as if the LISA, as it inevitably became known, would suffer the same fate. However, in September the idea re-emerged from the Treasury, with an unchanged launch date of 6 April 2017.

The key points about the LISA are:

It will only be available to you if you are aged between 18 and 39.

The maximum contribution will be £4,000, which will count towards your £20,000 ISA contribution limit for 2017/18.

Contributions made before age 50 will receive a 25% “government bonus”, so if you contribute the maximum, there will be a £1,000 government top-up.

Investment rules are broadly the same as a normal ISA, meaning no UK income tax or capital gains tax.

Withdrawals are subject to a charge of 25% of the amount taken unless:

– You are aged at least 60; or
– The funds are being used to buy your first home (maximum value £450,000); or
– You are terminally ill and have less than 12 months to live.

Initially you are likely to have only a limited choice of LISAs – most providers have not had enough time to develop their offerings because of the legislative delays. However, if you are tempted by a LISA, do talk to us before taking any action. While a LISA might look like an attractive alternative to traditional pension arrangements, it will not always be the case.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Tax year beginning planning can be just as valuable as its more familiar year end counterpart.

The run up to 5 April, with the Budget (and often Easter) intervening, can be a frenetic time for personal financial planning. All tends to go quiet once the new tax year begins, but the reality is that there are many planning points that are worth considering at the startof the tax year rather than leaving it until the end.

ISA contributions (£20,000 maximum in 2017/18) are best made at the start of the year rather than the end, as it means the tax benefits are enjoyed for nearly a year longer.

A similar argument applies to pension contributions, although if your income for the year ahead is uncertain, the case for delay is stronger.

The dividend allowance is £5,000 per tax year, so it is worth checking early on how much dividend income you are likely to receive and whether that prompts any investment changes. If you are married or in a civil partnership, that might mean transferring assets between the two of you.

Similar considerations of who holds what apply to deposit accounts and the personal savings allowance of up to £1,000 a year each.

The many thresholds built into the income tax system are a driver to working out what might be your total income in the tax year as soon as possible. If you know in April you are likely to be near a threshold by next March, you have that much more time to plan accordingly.

If you would like a tax year beginning review of your financial planning, please talk to us now – don’t wait until next March.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.